A Policy Agenda for the Sharing Economy

The emerging movement of collaborative consumption is redefining the ways goods and services are exchanged, valued and created.

Article

October 9, 2012

Sharing is an old idea. But its potential to generate new economic opportunities is only just beginning. Under the name “collaborative consumption,” or sometimes simply “the sharing economy,” a new type of enterprise is emerging that strives to make it easy for people who don’t know each other to share resources. Habits of sharing that have existed within small, informal networks for most of human existence (say, borrowing your neighbor’s lawnmower or letting a friend crash on your couch) have now blossomed into a market for micro-entrepreneurship that spans the globe. This new enterprise is fundamentally capitalist yet simultaneously more socially and environmentally conscious. And it has been made possible by the emergence of new, networked social tools and a cultural shift toward peer-to-peer commerce that makes trust and efficient exchange between strangers possible.

Collaborative consumption represents a major economic, social and cultural shift. But as it moves out of infancy and toward greater adoption and acceptance, it’s time to look at the ways policy might help facilitate its growth — and how government might help, or hinder, its progress.

The emergence of the sharing economy

One of the longest-standing examples of the sharing economy is car sharing, which got its start more than a decade ago. SPUR was an early supporter and in 2001 made it a strategic priority to bring car sharing to the Bay Area, helping to incubate a new nonprofit organization, City CarShare, to provide the service. Car sharing proceeded from two basic insights: first, that cars are expensive to own and second, that most cars sit idle most of the time. The early car-sharing movement identified a previously unvalued resource — the unused hours of a car. By making it possible to pay based on how much one drives, car sharing converts the fixed costs of ownership to variable costs based on use.

Car sharing offered a glimpse of the incentives that would come to motivate the broader sharing economy, such as cost-consciousness, concern for the environment and a renewed interest in community. Today, City CarShare members save an average of more than $8,000 per year compared with the costs of private car ownership. From an environmental perspective, the benefits of car sharing are enormous: reduced resource consumption because fewer cars are manufactured and better use of urban land previously devoted to storing vehicles. By making the true marginal costs of car use visible to drivers, car-sharing members are incentivized to drive less.[1] Since City CarShare launched in 2001 with 50 participants, it has grown to more than 15,000 members and 400 cars while attracting competition and imitators of all kinds. City CarShare has overcome numerous practical hurdles — lining up parking spaces, creating reservations technology, acquiring the vehicles themselves — but more importantly, it has gotten people to rethink the role of the automobile in their lives.

Newer entrants to the collaborative consumption field have offered many of the same benefits and seen similar levels of remarkable growth. Services and spaces like Loosecubes and Hub Bay Area make it possible to share office space. Airbnb, VRBO and CouchSurfing provide a way for people to rent out their apartments, homes or extra rooms when they aren’t in use. Peer-to-peer car-sharing companies like Getaround and RelayRides enable private owners to rent out their cars, potentially turning every car into a shareable asset, while Park Circa is doing the same thing for parking spaces. SideCar and Zimride help drivers share the unoccupied seats in their vehicles by using technology to facilitate spontaneous, on-demand ride sharing. Everything from apparel to babysitting services, backyard produce to cargo bikes, can be exchanged under the new sharingeconomy model. Nearly all of these ventures challenge existing industries and practices, such as traditional rental car companies and cab companies, traditional rental agreements or conventional usage patterns.

The people who developed the necessary technologies and the projects that got us accustomed to the idea of sharing on a larger scale deserve considerable credit for this shift in the status quo. The open-source software movement and Wikipedia pioneered a method for harnessing the contributions of a crowd to produce a shared resource, even when the participants are far-flung and don’t know each other. This remains a core element of collaborative consumption, one that defines the practices of companies like Kickstarter and other forms of crowdsourced funding, social lending (Lending Club, Prosper) and social currencies (Ven, Bay Area Community Exchange). The 1999 advent of Napster, the notorious music downloading site, made many people comfortable with notions of use rather than ownership. And eBay brought technology-based market exchanges to the masses, facilitating a huge wave of micro-entrepreneurship that paved the way for companies like TaskRabbit, Vayable and Skillshare.

It’s important to note that this is not solely an outgrowth of new technologies; some facets of collaborative consumption are thriving via comparatively low-tech tools, such as parents’ groups that facilitate kids’ clothing exchange, announce garage sales and the like on Yahoo discussion threads, and via brick-and-mortar community efforts like tool sharing and skill sharing. A huge component of this movement is a culture and behavior shift: People are collaborating informally in their neighborhoods out of necessity and as a lifestyle choice.

That said, the increasing adoption of online commerce and the rise of smartphone ownership are core to the rapid growth of collaborative consumption. Forty-six percent of American adults now own a smartphone, up 11 percent from a year ago.[2] In the United States, e-commerce sales grew 16.1 percent from 2010 to 2011 and are expected to continue growing by 10 to 15 percent for the next several years.[4] Whereas traditional sharing arrangements tended to be informal and limited to folks one knew, the new technologies allow people who don’t know each other to share resources more safely, formally and efficiently.

Why the sharing economy is important

For urbanists, the rise of the sharing economy is gratifying. These sharing services are extensions of our community. They require a belief in the commons (i.e., public space, public education, health and the infrastructure that allows our society to function), which cities foster, and they are amplified by the kind of physical proximity that only exists in cities. Metrics increasingly reveal that sharing economy businesses tend to generate greater economic benefits and reinvestment in the community. Studies have shown, for example, that for every reduction of 15,000 owned cars, a city keeps $127 million in the local economy as people are able to get what they need within a smaller geographic area. [5]

For the Bay Area, the sharing economy has the potential to be especially significant in several ways. One, it offers a very direct and powerful way to make it more affordable to live here. Instead of owning a car, you can reliably access one only when you need it. If you own a car, you can rent it out during the estimated 92 percent of the time it is not being driven. If you go out of town, you can rent out your vacant home. The impact of these services on household budgets can be huge. Getaround members earn an average of $4,200 per year renting out their cars[6] while Airbnb hosts in San Francisco earn an average of $5,000 a year renting out their housing units. Those hurt by the recession can supplement — or even cobble together — their income through 21st-century versions of the temp agency, such as TaskRabbit.

Second, this industry model is exportable. One of the ways that cities grow their economies is by developing businesses that serve specialized local tastes — think music in Nashville or jogging in Portland. Local firms that grow up serving these demanding customers can then export to customers elsewhere. [7] The urbanized Bay Area provides the perfect incubator for collaborative consumption. Some of our cities have compact land use patterns that facilitate interaction and exchange. We have an educated population with high numbers of early adopters of new technologies. We have high environmental awareness, along with a high cost of living, which motivate us to experiment in new ways to save money by sharing resources. Today San Francisco is the center of the collaborativeconsumption movement in the United States, with strong support from Silicon Valley. If some of the firms that exist today can find traction and grow nationally and internationally, we will have witnessed the emergence of an important new part of our economic base.

A policy agenda for the sharing economy

Despite the excitement surrounding these ventures, the emerging industry faces several significant challenges — most pressingly, outdated regulatory frameworks and the hostility of established enterprises.

When a new industry or technology emerges, government frequently has to rely on past models as it figures out how to regulate the new enterprise. For example, when the automobile debuted on American roads, it came into conflict with the horse, and early regulations tended to prioritize the horse. As Kenneth Jackson detailed in his book Crabgrass Frontier: The Suburbanization of the United States, “On the theory that lumbering automobiles frightened horses and raised dust, many states followed British precedent and passed laws limiting self-propelled vehicles to four miles per hour and requiring that each be preceded by a man on foot carrying a red flag.” [8] At the same time, the extremely powerful railroad industry kept the automobile from emerging as a competitive threat, delaying by decades the construction of networks of paved roads.

We can see here that these twin threats — inappropriate regulations and fearful established companies — are interrelated. Peer-to-peer car sharing, for example, was held back for years because California insurance regulations didn’t allow it. Car companies are threatened by car sharing, just as taxi companies are threatened by dynamic ride sharing. Likewise, hotels are threatened by the increasing numbers of peer-to-peer room and house rentals. In all of these situations, there may be valid reasons to monitor, regulate and tax the collaborative activities, but there is great danger that in doing so, government could make it impossible for the sharing economy to work.

What companies within the sharing economy need from government is fairly straightforward: They need to be allowed to operate. This means that they need protection from established companies that might try to use the power of government to kill competition, and it means that they need a tax structure that does not penalize collaborative consumption.

As of this writing, the rules of the San Francisco assessor-recorder state that every person who rents his or her apartment on a sharing site must pay the transient occupancy tax (commonly known as the “hotel tax”), just like a hotel does. But other businesses in San Francisco don’t start paying taxes until they generate revenue over a certain threshold. (If the business tax reform on this November’s ballot passes, businesses in San Francisco that earn less than $1 million in revenue will not be subject to a gross-receipts tax.) Shouldn’t people who earn a couple thousand dollars a year from sharing resources have a similar small-business tax exemption?

Advocates of the sharing economy argue that we should give the benefit of the doubt to people who are trying to earn a little extra money renting their housing units, cars, parking spaces or other assets — that we should be permissive about letting people share resources.

If governments decide to require permits for certain forms of sharing, let’s make sure that we invent a modern form of permit — one that is accessible online and easy to understand, as simple as registering to vote. If we can’t make it that easy, let’s strongly consider not requiring a permit. These new platforms provide an easy and low-impact way to track transactions that otherwise were “underground” and to capture revenue.

Government’s first and primary role in fostering the sharing economy should be to protect this economy’s existence by not overtaxing it or regulating it out of existence. Beyond that, there are several key things governments can do to promote collaborative consumption:

1. Governments can be early adopters of shared services, as the City of Berkeley did with City CarShare. [9] By promoting the services and providing the early users that new services rely on to grow, they give their stamp of approval to something that will, in many cases, save taxpayers money.

2. They can help create better and more standardized methods for measuring the impacts and benefits of the sharing economy. Hotels have ways of quantifying their economic benefits to the community through hiring; purchasing of furniture, food and cleaning products; procurement contracts; and tourist dollars spent locally. As yet, Airbnb has no consistent method to measure its economic impact, though it has substantial survey evidence indicating that the income of Airbnb guests most often flows to the immediate neighborhood, which is generally outside the traditional tourism districts where visitor dollars concentrate. Survey data also shows that hosts use their Airbnb income to reinvest in their home thus increasing property values in their neighborhood.

3. Local decision makers can communicate with other cities about model policies for supporting the sharing sector. Creation of overarching best practices would save municipalities across the country time and would help them create incentives for growth. San Francisco can be an undisputed leader in this effort.

4. Cities can play a more active role in making both publicly owned and private assets available for maximum utilization by residents. The simple genius of the sharing economy is in identifying existing but underutilized assets and extracting a benefit that previously didn’t exist. SPUR’s Public Harvest report [10] inspired San Francisco to do this with public lands by calling for an audit of city-owned land and rooftops to see which are suitable for urban agriculture.

5. Local governments can build on the backbone of the great sharing service they already provide – libraries – by expanding them to related uses such as tool libraries.[11]

Potential for a symbiotic relationship

Since City CarShare launched more than 10 years ago, the sharing economy has grown and developed in ways we never could have imagined. It’s generating ways to save resources and money. It’s actively helping build community and creating new jobs and new modes of commerce. It’s an expression of the natural virtues of city life, in which high densities of people facilitate exchange, collaboration and innovation.

Collaborative consumption shares a core trait with government in that both exist to help local residents meet their goals. Their aspirations for communitybased benefits are largely aligned and can amplify each other. Consider city goals of zero-waste and job growth, for example. Collaborative consumption can help make cities better. But its continued viability and growth will be contingent on learning to play well with government. It is incumbent on all of us to figure out the best ways to ensure that will happen.

Some of the sharing economy is taking shape within for-profit businesses, which will want to expand around the country and around the world. Others are nonprofit, mission-driven organizations or local, informal efforts. A range of different projects are taking shape and gathering momentum. We may have only begun to realize their potential.